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Is Pfizer a Buffett Stock?

Let's find out.

As the world's third-richest person and most celebrated investor, Warren Buffett attracts a lot of attention. Thousands try to glean what they can from his thinking processes and track his investments.

We can't know for sure whether Buffett is about to buy Pfizer(NYSE: PFE) -- he hasn't specifically mentioned anything about it to me -- but we can discover whether it's the sort of stock that might interest him. Answering that question could also reveal whether it's a stock that should interest us.

In his most recent 10-K, Buffett lays out the qualities he looks for in an investment. In addition to adequate size, proven management, and a reasonable valuation, he demands:

Consistent earnings power.

Good returns on equity with limited or no debt.

Management in place.

Simple, non-techno-mumbo-jumbo businesses.

Does Pfizer meet Buffett's standards?

1. Earnings powerBuffett is famous for betting on a sure thing. For that reason, he likes to see companies with demonstrated earnings stability.

Let's examine Pfizer's earnings and free cash flow history:

Source: S&P Capital IQ.

Over the past five years, Pfizer's has held remarkably consistent earnings.

2. Return on equity and debtReturn on equity is a great metric for measuring both management's effectiveness and the strength of a company's competitive advantage or disadvantage -- a classic Buffett consideration. When considering return on equity, it's important to make sure a company doesn't have an enormous debt burden, because that will skew your calculations and make the company look much more efficient than it is.

Since competitive strength is a comparison between peers, and various industries have different levels of profitability and require different levels of debt, it helps to use an industry context.

Company

Debt-to-Equity Ratio

Return on Equity

5-Year Average Return on Equity

Pfizer

47%

10%

12%

Merck(NYSE: MRK)

32%

5%

22%

GlaxoSmithKline(NYSE: GSK)

183%

38%

49%

Bristol-Myers Squibb(NYSE: BMY)

34%

30%

26%

Source: S&P Capital IQ.

Pfizer seems to be generating modest returns on equity while employing a moderate amount of debt.

3. ManagementCEO Ian Reed has been at the job only since December, though he's worked at Pfizer since 1978 in a number of different roles.

4. BusinessDiversified pharmaceuticals require constant research and development, and pipeline difficulties are a threat, but the industry isn't particularly susceptible to wholesale technological disruption.

The Foolish conclusionRegardless of whether Buffett would ever buy Pfizer, we've learned that, while it's generated fairly steady earnings over the past five years, the company doesn't particularly exhibit some of the other characteristics of a quintessential Buffett investment: high returns on equity with limited debt and tenured management. That being said, if you'd like to stay up to speed on Pfizer's progress, or that of any other stock, simply add it to your stock watchlist. If you don't have one yet, you can create a watchlist of your favorite stocks.